Saturday, February 27, 2010

I've mentioned the Austrian school of economics derisively on this blog before. But why?

Well, basically it's because Austrian economics is a neo-Luddite anti-scientific religious cult masquerading in secular cloak. Austrian economics holds that there are a priori truths, apparently pulled out of their asses, which need not be verified or validated because they are true because, well, because they say they're true. Furthermore, they hold that attempts to validate these supposed truths via the fundamental mathematical methods of science are invalid because, well, because. They reject modern statistical analytical methods, which are a fundamental component of all modern sciences, as somehow "invalid" despite the fact that these methods have been successfully used for everything from the statistical analysis of the location of subatomic particles within an atom (which the Heisenberg Uncertainty Theorem holds cannot be determined exactly, you can only compute a statistical cloud of where they are likely to be) to estimating the number of homeless men in San Francisco, and explicitly reject any attempts at mathematically modeling economic behavior on a macro level, claiming that the only valid mathematical models are microeconomic models of specific economic transactions, anything on a macro level is somehow invalid. You will not find a single equation in the works of Austrian economics' patron saint, Ludwig van Mises, and while you will find some in his acolyte Hayek's work, Hayek still continued the insistence upon a priori "truths" even when said "truths" led to patently absurd conclusions such as the notion that 25% unemployment in Germany in 1932 was caused by lazy Germans voluntarily taking a Great Vacation. Testing his conclusion against the actual reality of Germany 1932 was not necessary for him because his model said it was true, so it had to be true -- he had faith, faith I say, that it was lazy Germans causing 25% unemployment in Germany in 1932!

In short, Austrian economics explicitly rejects the tools and methods of modern science., the most important of which is that you must test your models against reality, you can't simply say they're true because they're pretty models. So why does that lead me to reject Austrian economics as an economic school? Simple: I am a utilitarian. We have ample evidence that the tools and methods of modern science -- the most fundamental of which is that all models must be validated with actual data before being accepted as possibly true -- simply work. You are staring at the evidence of that right in front of your face. The computer you're reading this with could not exist without the scientific method, because it was the scientific method which enabled the researchers who developed the transistor and semiconductors to model the movement of electrons through substrates. Given the demonstrable evidence that the scientific method works -- evidence literally right in front of my face -- how can I accept a school of economic thought which claims that, in fact, the scientific method is bunkum? What next, am I supposed to give serious consideration to the ideas of the Flat Earth Society too?

So anyhow, if you come here and spout Austrian nonsense, I won't delete your silliness. But I *will* point and laugh derisively and make fun of you. So be warned, this penguin has a sharp tongue ;).

3 comments:

Number of homeless people in a city and other physical data such as velocity of an atom or the number of volts required to power the computer are all quantifiable and falsifiable. There are a cardinal amount of homeless people and volts.

Austrian Economics simply rejects the use of applying cardinal numbers to things that cannot be quantified, such as utility.

This is why a great bulk of mainstream econ is rejected by the Austrians; many mainstream econ textbooks and Doctors prescribe subjectively decided political methods of resource allocation based on models which attempt to calculate "social welfare" or attempt to interpersonally compare utility gains and losses.

I cannot speak on behalf of subscribers to the Austrian school, as they are capable of contradiction, but the theory is pretty solid in my opinion.

it boils down to this; one person cannot objectively know how much another person values X, because unlike height, mass, speed, etc, utility is not cardinal, but ordinal. I can like A over B over C, but I cant like A by 25.67 or some such number.

I am only a student of economics as a whole, not a master at any of it. If you want to refute Austrians, go read up on Man, Economy, and State or some article, and refute it point by point or something. I know that many Austrians do that with Mainstream papers all the time, and i commend their dedication to skepticism. You can find most of the books/papers at mises.org

The problem is that capitalism by definition applies cardinal numbers to things like utility. Economics in a capitalist economy thus must study the cardinal numbers that capitalism attaches to things like utility, or it is utterly useless. This Austrian complaint is thus at its heart, like Marxism, a complaint about capitalism itself, except far less honest since the Austrians claim to be capitalists, yet like Marxists reject central concepts of capitalism such as fractional reserve lending and the assigning of monetary value to things that the Austrians feel should not be assigned monetary value.

But that just validates my complaint that Austrian "economics" is, at its heart, a religion. It makes ridiculous statements like "you cannot apply cardinal numbers to utility" or "a particle cannot be in two places at once", statements that are easily disproven by simple observation of actual data as exists in the reality of our universe, and then claims these statements are true because, well, the Bible (or von Mises) says so. The reality of our universe is that capitalism assigns a numeric value to pretty much everything and light is both a particle AND a wave (not a particle moving in a wave, but a particle that is a wave), and that a photon can be in two places at once (the famous two-slit experiment -- look it up). Yet the Austrians, in their anti-scientific anti-capitalist jihad, reject this principle method of modern science i.e. that when reality contradicts your ideology it is your ideology, not reality, that is wrong -- and then refuse to admit it, as you do when you note you will not be returning. Which is not surprising, because the only argument you -- or any Austrian -- ever makes is "it's true because I say it's true!" (all Austrian "logic" eventually boils down to that, when you track down the logic chain to the bottom you *always* find statements that the Austrians claim are "true" just because), and really, once you make that argument once, why make it again?

I'll take the non-partisan Congressional Budget Office over van Mises, Eugene Fama, Johhny Cochrane, and some guy named Mike.

The CBO replies: The theory that government spending will crowd out private spending is based on "unrealistic" assumptions. "This type of model generally assumes that people are fully rational and forward-looking, based their current decisions on a full lifetime plan." These models assume that people "have full access to credit markets" to maintain their desired level of lifetime consumption, even if they lose their job temporarily. These theories also assume that involuntary unemployment is impossible. None of those assumptions are realistic. If the government were crowding out the private-sector, interest rates would rise to reflect less private investment in the future. Interest rates aren't rising, CBO said.

Michael's argument boils down to: Since you cannot accurately quantify utility to the second decimal place, the application of numerical models to economic problems becomes "subjectively decided political methods of resource allocation."

As distinct from the Austrian school which uses van Mises abstract notions as axioms from which to subjectively decide political methods of resource allocation.

Ground rules: Comments that consist solely of insults, fact-free talking points, are off-topic, or simply spam the same argument over and over will be deleted. The penguin is the only one allowed to be an ass here. All viewpoints, however, are welcomed, even if I disagree vehemently with you.

WARNING: You are entitled to create your own arguments, but you are NOT entitled to create your own facts. If you spew scientific denialism, or insist that the sky is purple, or otherwise insist that your made-up universe of pink unicorns and cotton candy trees is "real", well -- expect the banhammer.

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